The Corner for Jan. 10, 2014

Published January 11, 2014 at 4:30 pm

{This is the conclusion a two-part series on the gold corner during the “Gilded Age”}

After Grant left Washington the gold ring began amassing contracts for gold. The Tenth National Bank, which was controlled by New York City’s William Marcy “Boss” Tweed, placed its assets at Gould’s disposal, issuing him certified checks in virtually unlimited amounts against purchases of gold which were used as collateral.

For some time, the price of gold didn’t change much at all, hovering at about 130 — meaning it took $130 of paper currency (“greenbacks”) to purchase $100 of gold certificates. By Sept. 4, however, the plotters’ purchases had raised the price to 137, a postwar high.

Finally, President Grant caught on. Preparing to leave for Pennsylvania, he observed the steady rise in the price of gold and recollected the never-ending parade of Corbin’s friends. The president sensed, at last, that Corbin was up to no good. On arriving at his cousin’s home in Pennsylvania, he asked Mrs. Grant to write to Mrs. Corbin in New York. In her letter, Mrs. Grant advised, “Tell Mr. Corbin that the President is very much disturbed by your speculations and you must close them as quickly as you can.”

The letter arrived a week later on Wednesday, Sept. 22, whereupon Corbin showed it to Gould. The latter immediately realized that the price of gold would collapse if the letter were made public, for the president clearly suspected a plot and was prepared to halt it. Gould persuaded the terrified Corbin not to tell anyone about the message.

Gould and his associates had by now purchased contracts for over $100 million worth of gold, most of it on margin. To avoid losses, Gould needed to sell his holdings before Grant’s views became known. Better still, if he could keep his associates in the dark and lure them into stepping up their purchases, the price would remain high or even rise while he unloaded. Fisk, for one, was completely taken in by Gould’s treachery and started buying as fast as he could.

Gold opened Wednesday morning at 137 1/4 and, driven by Fisk’s purchases, rose nearly four points to close the day at 141 1/8. By now, Wall Street was in panic. The ring’s buying operations had consumed most of the money normally available for stocks, with the result that stock prices were tumbling and business credit was drying up. Gold rose again on Thursday, closing the day at 143 3/8.

To all ring members except Gould and Corbin, who knew otherwise, the corner now seemed complete. One of the ring’s brokers estimated that 10,000 to 15,000 individuals had sold gold short (a way to profit from a decline in price) and would have trouble finding enough of the metal to cover their positions. Fisk suggested that a list of short-sellers be published in the newspaper with an offer to settle at a stiff price, and with an added threat that the price would advance to 200 by Saturday if the offer were refused.

On Sept. 24, 1869, known as Black Friday, the plot foundered, with dire consequences. At the opening bell, the trading floor of the New York Gold Exchange came alive with the frenzied roar of brokers competing to buy whatever gold was left. Fisk’s broker was buying at 150, even as Gould’s broker was selling his last positions at 136 in another part of the room. Gould had warned his broker to stay clear of Fisk’s broker, so as not to be caught in a double cross. Soon, the price moved up to 160.

Meanwhile, the streets outside the Gold Exchange were filling with crowds of angry investors who had suffered fearful losses in stocks and gold who realized, by now, that Gould and Fisk were to blame. The National Guard stood by ready to intervene if rioting broke out. The entire nation came to a standstill, waiting for the latest news of the turbulent events on Wall Street.

It was at this point that Grant returned to Washington and, learning of the crisis, ordered the sale of gold from the government stock. Just prior to noon, the Treasury issued a surprise announcement of plans to offer $4 million worth the next day. While the amount was not large, the psychological impact was enormous. Within minutes of the announcement, the price fell from 160 to 135.
The scene inside the Gold Exchange turned to utter chaos. Fisk’s broker, still following his client’s orders but clearly overwhelmed by the events, kept buying at 160. Dozens of other brokers found themselves suddenly bankrupt as the price collapsed. One went home and shot himself. With a terrible vengeance, the mob surged down the street from the exchange to Gould’s office, intent on lynching him. Gould was saved by the quick arrival of deputy sheriffs, who formed a cordon around his office. After several hours, when the crowd began to disperse, he snuck out the back door to safety.

Congressional hearings followed, and Gould, Fisk, Corbin, Butterfield and others were all taken to task. But aside from the forced resignation of Butterfield from the Treasury, none of the conspirators was punished since, it turned out, cornering the nation’s gold supply was not a crime. Fisk later obtained a court order invalidating his gold contracts and thereby avoided any losses. Gould was rumored to have netted $11 million in the debacle.

Gould later proclaimed, “I regret very much this depression in financial circles, but I predicted it long ago. I was in no way instrumental in producing the panic.”

And Fisk in equally robust form added, “A fellow can’t have a little innocent fun without everybody raising a halloo and going wild.”

Gould became a hated man and was thereafter excluded from respectable New York society. He continued his manipulations and died in 1892 worth millions. In 1872, three years after Black Friday, Fisk was shot dead by a former business associate in a rivalry for the love of an actress.

Quote of the week: “I prefer to be a gold bug rather than a paper worm.” — Nicholas Deak

Bart Ward is the chief executive officer of Ward & Co. Ltd., an Anoka-based registered investment adviser – specializing in the management of stock and bond portfolios in companies which are listed on the NYSE.